The Resilient Investor

A Plan for Your Life, Not Just Your Money

Hal Brill (Author) | Michael Kramer (Author) | Christopher Peck (Author) | Jim Cummings (Author)

Publication date: 01/22/2015

The Resilient Investor

The way you spend your time, your energy, and your purchasing dollars are investments just as much as any brokerage account is, and they deserve the same kind of attention. The Resilient Investor shows you how to expand the concept of investing beyond stocks and bonds, wake up from dangerous old investing patterns, open your eyes to new opportunities, and build a better world.

The book's centerpiece is the Resilient Investment Map, which first lays out three classes of assets: personal (your time), tangible (the things you own or have access to), and financial (traditional investment funds). Then it offers three different strategies for those assets. You can invest them in ways that strengthen yourself, your family, and your community; in ways that encourage the continued growth of a sustainable global economy; or in more visionary efforts that will help create a better future. You'll learn how to diversify your investment eggs into many more baskets than those offered by Wall Street.

The goal is to make yourself more resilient: able to anticipate and prepare for disturbance, rebuild as necessary, and adapt and evolve when possible. For example, investing in food and energy self-sufficiency will help if the financial system takes another tumble. But, as the authors persuasively argue, the choices that ultimately make you the most resilient also enhance our communities, our economy, and the planet-paying true dividends to everyone.

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Overview

The way you spend your time, your energy, and your purchasing dollars are investments just as much as any brokerage account is, and they deserve the same kind of attention. The Resilient Investor shows you how to expand the concept of investing beyond stocks and bonds, wake up from dangerous old investing patterns, open your eyes to new opportunities, and build a better world.

The book's centerpiece is the Resilient Investment Map, which first lays out three classes of assets: personal (your time), tangible (the things you own or have access to), and financial (traditional investment funds). Then it offers three different strategies for those assets. You can invest them in ways that strengthen yourself, your family, and your community; in ways that encourage the continued growth of a sustainable global economy; or in more visionary efforts that will help create a better future. You'll learn how to diversify your investment eggs into many more baskets than those offered by Wall Street.

The goal is to make yourself more resilient: able to anticipate and prepare for disturbance, rebuild as necessary, and adapt and evolve when possible. For example, investing in food and energy self-sufficiency will help if the financial system takes another tumble. But, as the authors persuasively argue, the choices that ultimately make you the most resilient also enhance our communities, our economy, and the planet-paying true dividends to everyone.

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Meet the Authors


Visit Author Page - Hal Brill

Hal Brill is the co-author of Investing with Your Values: Making Money and Making a Difference (Bloomberg Press, 1999; New Society Press, 2000) and co-founder of Natural Investments. He lives in a sustainable neighborhood that he developed on the edge of Paonia, Colorado. He is on the board of Solar Energy International, which provides technical training in renewable energy, and is business manager of an organic hops farm.



Visit Author Page - Michael Kramer

Michael Kramer is director of social research at Natural Investments. He joined the firm in 2000 after being a client for 10 years. He serves on the Policy Committee of US SIF: The Forum for Sustainable and Responsible Investment. He publishes the Sustainable Shareholder column at GreenBiz.com and is a strong advocate of innovative financial instruments, local green economic development, and corporate and regulatory reform. He lives in Kailua-Kona, Hawaii.



Visit Author Page - Christopher Peck

Christopher Peck lives in Sonoma County, California, on a developing homestead within biking distance of a lovely downtown. He is a long-term sustainability entrepreneur and holistic financial planner. He has taught sustainable finance for many years, including in a green MBA program, and a popular course on business planning. He has a black belt in aikido and has been studying Zen Buddhism for more than 20 years.



Visit Author Page - Jim Cummings

Jim Cummings is a writer and editor who has worked with Natural Investments for the past 15 years. He is the founder of the Acoustic Ecology Institute, which offers clear, unbiased information on sound-related environmental issues, and he writes on the nature of our times at BrightBlueBall.net. He lives outside Santa Fe, New Mexico, along the Rio Galisteo in the southern foothills of the Rockies.

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Table of Contents

Introduction
Standing Up to Uncertainty
Chapter 1: 
Facing the Future
Why We Are Expanding Your View of Investing
Chapter 2: 
More Than Money:
Recognizing Your Real Net Worth
Personal, Tangible, and Financial Assets
Chapter 3: 
Weaning off Wall Street
The Three Investment Strategies:
Close to Home, Sustainable Global Economy, and Evolutionary
Chapter 4: 
A Field Guide to Resilient Investing
A Tour of the Nine Zones of the Resilient Investing Map
Chapter 5: 
Find Yourself on the Map
What You Are Already Doing: Self-Assessment
Chapter 6: 
Be Ready for Anything
Qualities of the Resilient Investor
Scenario Planning, and Plausible Futures
Chapter 7: 
Dancing with the Future 
Resilient Investor Profiles: What Is Your D-Type?
Chapter 8: 
Your Resilient Investing Plan
Designing, Implementing, and EvaluatingYour Resilient Investing Plan
Chapte 9: 
Tales of Resilient Living
The Authors’ Stories
Chapter 10: 
The Invisible Heart of Resilience
How Becoming Personally Resilient Helps Create a Resilient World
Resource 1: The Case for SRI 
Resource 2: The Investor’s Eye 
Resource 3: The Resilient Investor Online Resources 
Notes 
Glossary 

Index 
About the Authors 
About Natural Investments 


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Excerpt

The Resilient Investor

INTRODUCTION

Standing Up to Uncertainty

DOES THE CHALLENGE OF MAKING INFORMED DECISIONS ABOUT YOUR life seem far more complex today than it did even a short time ago? Does the future—your own and that of the world—feel highly uncertain, perhaps even precarious?

We can sense you there, nodding in agreement. We would also wager that you would love to have a crystal ball that could tell you how the future will unfold, enabling you to make prescient decisions as you glide through life. Indeed much of today’s media aims to quench that thirst for guidance, projecting a steady stream of “experts” onto our screens, each of whom is rife with insight to help us understand how things will unfold. And we lap it up, even though we have seen all too often how their predictions are mocked by the actual turn of events.

So we need to say right at the outset that you’ve just picked up a book that is not going to tell you what’s going to happen this year or next. It would certainly be much easier to market a book that reveals our “three smart money secrets”—everyone’s a winner! Once in a great while, those sorts of books guess right—but we cannot in good conscience make that pitch for one simple reason: the future has yet to be written. There are no simple formulas that can be relied on in this complex and unpredictable world.

The good news is that this book offers something even more valuable: a dynamic framework that will help you navigate the stormy times in which we live. The tools we offer are designed to keep you nimble, which you’ll need to be as the ground continues to shift. Because although we cannot tell you how things will change, we do know that they will change.

Although humanity has faced immense challenges before, the sense that things really are different this time is one that is shared by the US military. They coined the acronym VUCA, which stands for volatile, uncertain, complex, and ambiguous. Interestingly, they started using this term before the 9/11 attacks, superstorms, the financial meltdown, and all the other events that have pummeled us in this fledgling century. At the same time, forward-looking companies have turned the complexity of our times into opportunities; Fast Company calls this the Age of Flux, “defined more by fluidity than by any new, settled paradigm. If there’s one consistent pattern, it’s that there is no pattern.”1

It is ironic that in these turbulent times, when we most crave a road map to show us where we are going, our visibility into the future is most limited. It’s like trying to drive through a thick fog and realizing that no one has invented a fog light that really works and that the maps we have are useless because we cannot see the signs.

Many investors swerved to the side of the road, stopping wherever they were when the fog rolled in. They have bailed on Wall Street but don’t have a clue about what to do instead. Even while the Dow was steadily climbing after the crash, individual investors kept yanking money out of stock mutual funds right through 2012.2 Much of that cash has been parked in today’s version of a mattress: bank accounts earning such minuscule interest that they do not begin to keep up with inflation or even bank fees. Stung by previous declines, and bewildered by today’s complexity and uncertainty, it’s too easy for investors to imagine falling into a giant pothole if they take their foot off the brake.

Others, with a stiff upper lip, kept driving just as they did before. They stayed true to their investment discipline; and despite bone-jarring earthquakes (two of the worst bear markets in modern US history occurred within the first decade of this century), they stayed on the road, followed all the rules, and actually, as of this writing, are feeling somewhat vindicated, as the market did come back. Probe a little deeper, however, and you’ll rarely find anyone who’s confident that things have returned to normal. The widely used term new normal implies that the old rules about how to be a successful investor may no longer apply and that we need to fundamentally rethink our assumptions about economic growth. Even with the strong bounce of 2009–2014, overall stock market returns since the peak of 2000 are measly by historical standards: as of June 2014, real returns after inflation for the S&P 500 were just 1.2 percent annualized.3

This book is for both kinds of investors: the ones shivering in their parked cars, waiting for the fog to lift, and the ones on cruise control, telling themselves that everything is fine but unable to tune out the disturbing news that keeps intruding on the hour. Of course most of us can relate to each of them; some days we jump behind the wheel and crank up the tunes, just like the old days, but other times, perhaps after seeing too much carnage along the highway or hearing about an approaching storm, we hunker down and stay put.

Wherever you have been, our focus here is on helping you get where you want to go. To guide your way forward, this book offers a pairing of two central ideas: resiliency and embracing an expanded view of what it means to “invest.”

The first, resiliency, offers an invaluable set of principles that can guide our decisions in this fast-changing world, keeping us responsive in the decades to come. The second arises from our experience as investment advisors, through which we have come to appreciate the pivotal role that investing plays in shaping the wholeness of our lives and our collective future.

By weaving together these two essential themes, we developed the framework that you are about to learn: resilient investing. This toolkit can help you build a life in accordance with your dreams, no matter what the future may bring. With it you’ll learn how to take action, stand up to uncertainty, and stay flexible.

Here is a first peek at these two complementary ideas.

Resiliency

There’s a new word in town, and its name is resilience. It came out of the blue and unseated the reigning champion, sustainability, which, as many had noted, was getting kind of soft (Barbie now comes in “sustainable packaging”). Everywhere we look resilience is poking in its fresh new face: in economics, climate science, leadership, online security, community planning, and psychology (actually that is a place where it’s been in common usage for some time). Amazingly in these partisan times, it has managed to span the ideological spectrum. The Post Carbon Institute recently launched a companion website, while the World Economic Forum in Davos jumped on the bandwagon by focusing its 2013 conference on “Resilient Dynamism.” If resilience science speaks simultaneously to relocalization activists in their transition towns, as well as the 1 percent gathered in their enclaves, we should clearly be paying attention!

Let’s look at what is meant by resilience and why it has arisen from so many quarters as a concept that is truly emblematic of our times. Andrew Zolli’s 2012 book, Resilience: Why Things Bounce Back, frames resilience as “the capacity of a system, enterprise, or a person to maintain its core purpose and integrity in the face of dramatically changed circumstances.”4 Zolli sees resilience as “an essential skill in an age of unforeseeable disruption and volatility.” A unifying and powerful lens, resilience can focus our awareness and actions at all levels, for individuals, businesses, communities, nations, and the entire planet.

Many people become aware of the importance of resiliency only after a disaster. Do an online search for Hurricane Sandy resiliency and you will find numerous articles and conferences convened as decision makers tried to figure out what we could learn from this superstorm and how we might rebuild in ways that will leave people less vulnerable. But the time to focus on resilience is before disaster strikes; in 2014 President Barack Obama proposed a $1 billion “resiliency fund” to help communities protect themselves from climate change impacts such as floods, drought, and wildfires.5

Futurists and systems theorists are having a heyday, creating a menagerie of frameworks6 describing resilience, but it really doesn’t need to be a difficult concept—we see it all around us. Everyone over 40 knows that they are not as physically resilient as they used to be; injured children recover more quickly than injured grandparents. Healthy ecosystems bounce back from fires and storms better than degraded ecosystems. Technology companies become irrelevant if they fail to respond decisively when circumstances change: perhaps the most striking example is Kodak, once synonymous with the very idea of photography but left in the dust by the shift to digital imaging.

For those with a strong bent on ensuring that we maintain the viability of the biosphere, it is worth taking a moment to see why resilience is starting to displace sustainability as an organizing concept. Zolli points out that sustainability tries to come up with an “equilibrium point” in which a system stays in balance, but this is counter to how many natural and human systems operate. As architect and systems thinker William McDonough wryly asks, “Who simply wants a sustainable marriage?”7 Resilience does rely on the principles of sustainability (unsustainable investments weaken the capacity of a system to maintain integrity), but it strives for a healthy dynamism rather than stasis.

The lens of resilience makes us more cognizant that for better or worse we have entered the age of the Anthropocene—a new term for a geological age in which humans have become the dominant factor shaping the world. Natural systems have been damaged to such a degree that we need to be prepared for random, extreme disruptions.8 At the same time, resilience points out that we should be designing our systems, and our lives, so that we do more than survive such disruptions. We will want to “capture the upside,” thriving and growing when exposed to volatility and disorder, while also seizing emerging new opportunities as they come into view.

For some, resilience has a flavor of hunkering down, waiting for disaster to hit, and coming out unscathed. That’s not a very juicy way to live, and it is not what we mean by resiliency. Our goal as investors is to make things better, for ourselves and for the world. We are using resiliency in its most flexible and optimistic form, still loyal to the goals of sustainability (providing for the needs of the present without harming the future) and with eyes staying sharp for emerging prospects. Here is our new and improved definition:

Resilience helps us to thrive by:

  • anticipating and preparing for disturbance,
  • improving the capacity to withstand shocks,
  • rebuilding as necessary, and
  • adapting and evolving when possible.

Resilience is a powerful remedy for our uncertain times. It helps us learn to live with the fundamental complexity of modern life. When the inevitable disruptions do hit the system, resilient investors will have the best possible shock absorbers to minimize being rattled and will be positioned to bounce back even better than before. Our favorite one-liner comes from Harvard business professor Rosabeth Moss Kanter, who wrote, “When surprises are the new normal, resilience is the new skill.”9

An Expanded View of Investing

In our combined decades of work as investment advisors, we have had the privilege of sitting down and talking in depth with hundreds of clients about what matters most to them. One thing that kept coming up in these conversations is that, although they liked our “invest with your values” approach, they did not like thinking about investing very much. We, on the other hand, think that investing is really cool, a focal activity where people make decisions that change their lives and the world. Are we just geeks, or do we see something that others don’t?

Eventually, we realized that most people have a rather narrow image in their minds about what “investing” really means. Do an image search on the word investing, and you will see lots of coins and dollar bills, graphs and charts, bullion bars and Wall Street suits. What generally comes to mind is that investing is done by those who have extra money, to turn it into even more money, using the methods promoted by Wall Street. While most of us are interested in becoming more prosperous, this concept of investing leaves many people out of the game; and even for those who do invest in this way, it is a cold and abstract prescription that fails to touch on what gives deeper meaning to our lives.

We say that it’s time for a new approach. Rather than wrinkling up one’s nose and doing “investing” the way we have been taught, we are asking people to take a step back and really think about what a powerful and creative role this activity could play in their lives. This begins with expanding our notion about what investing truly is, so try this on for size: investing is something that we all do by directing our time, attention, energy, or money in ways that move us toward our future dreams, using a diverse range of strategies.

Let’s start with dismissing the popular notion that investing is an activity that is available only to those with discretionary capital to play with. The fact is, neither the investment nor the return must necessarily be in the form of money. Financial investments are just one side of the coin; on the flip side is time—our most precious resource. We can and should bring this to the investing table by being thoughtful about the ways we focus our attention and channel our energy. Throughout this book we look at ways that the choices you make with your time, attention, and energy are as central to your long-term investments as the ways you manage your money.

Next we rethink the purpose of investing. As the Beatles so joyously pointed out, money can’t buy us love. Still, the single-minded pursuit of most investors is to increase our financial “net worth,” though our real goals in life are much broader than that. Resilient investing recognizes that we are actually interested in cultivating several types of assets:

  • personal—relationships, community, learning, health, and spiritual growth;
  • tangible—home, efficient energy systems, local food supplies, and a healthy local ecosystem; and
  • financial—stocks, bonds, and savings.

By including all of these valued objectives in our resilient investment plan, we have the opportunity to shape virtually all aspects of our lives.

Finally, it is important to rethink how we pursue those goals. Are the recommendations proffered by traditional investment books, magazines, and financial services firms the one and only valid methodology? Are there other strategies that you can use to diversify and seek out new opportunities that are largely ignored by Wall Street? And in this VUCA world, might it be wise to consider the possibility that strict adherence to traditional buy-and-hold-on-to-your-hats dogma may leave us vulnerable to systemic risks that threaten to send our economy reeling?

We refer to this notion of spreading our wings into more spacious skies as “weaning off Wall Street.” It opens our minds to exploring strategies beyond the one that rules today’s herd, with its all too familiar mantra of “show me the money.” As you are about to see, resilient investing provides three novel approaches to mix and match: close to home, sustainable global economy, and evolutionary investing (see chapter 3).

Now, with our expanded resources (money and time) in hand, we are pleased to show you our map. SEE FIGURE 1 What you will see immediately is that it covers much more terrain than that old familiar basket of market-based financial investments. There are nine distinct zones of investment choices that form the Resilient Investing Map (RIM).

The north-south axis of the map reminds you to grow your personal and tangible assets, not just your financial ones. Moving east to west, you will be engaging with three distinct investment strategies in ways that connect with both your interests and your outlook for the future.

Screen Shot 2015 07 01 At 2.15.04 Pm

Figure 1 The Resilient Investing Map (RIM)

You could think of each of the nine investment zones as baskets in which you can distribute the eggs (time and money) that you have to invest. By doing this you will achieve far more diversification than could be imagined from the limited perspective that most people are accustomed to using.

We will elaborate on this expanded approach to investing in chapters 1 through 4, and in chapters 5 through 8 we will guide you toward using the map to create your own resilient investing plan. Because this is a living landscape, we’ll be fleshing out the map’s many highways and byways, along with its connective rivers and verdant prairies, in a continually evolving online supplement to the book. In chapters 9 and 10, we’ll share our own experiences of working with the Resilient Investing Map and envision a future in which each of the three strategies becomes widely adopted.

This book is an invitation to embark on a journey of exploration in service of a most concrete purpose: preparing your life for whatever may come. We will help you cultivate a deeper clarity about how to work toward your hopes and dreams for the future while accounting for the uncertainties inherent in looking beyond our visible horizons. The way forward is likely to be dangerous, exhilarating, and challenging; it can also be rewarding, nourishing, and joyful. We may not know which future awaits us around the bend—but the way there is clear: we’ll just need to bend!

Future-Proofing Your Life

What are the advantages of adopting a map such as ours? Why would you want to be a “resilient” investor?

Many people are motivated by the desire to be as prepared as possible for an uncertain future, but they recognize that this is no easy task. We’ll encourage you to take a big-picture view of the world and consider the many ways that the future could unfold. You will want to envision where you would like to be going both in the near term and in the years to come and to keep abreast of the wide and growing range of investment choices available. By thinking in this broad, creative way, resilient investing gives you the tools to design a personalized plan. This will show you where you are currently investing your time and money, highlight areas that you might be over- or underemphasizing, and provide the guidance you will need to move forward in your chosen directions.

As you put your plan into action, you will notice a newfound sense of calm, one that rests on the knowledge that you have taken measured steps to future-proof your life and are ready to ride out the inevitable storms and surprises that come your way. You cannot eliminate risk, but you can dial down your stress level and have more peace of mind from knowing that you are prepared. Having a comprehensive and diverse set of investments will provide genuine benefits when one or another market you have invested in has a downturn, whether it’s a sudden drop in the Dow, a dry spell that decreases yields in your garden or regional food network, or an unexpected health challenge. While it is always painful to suffer a hit in one area, investments in other zones will likely be doing better and help carry you through.

We would be remiss if we didn’t mention that this broader approach to investing, one that elevates goals such as fulfillment and meaning, can also bring benefits to your financial bottom line. Yes, making money and stewarding it well is very much part of the picture. Resilience focuses your selection of financial instruments toward ones that are most relevant to these times, and it brings new investment opportunities onto your radar. In your daily life, it can also serve you in more-fundamental ways; its big-picture lens helps you avert short-sighted mistakes, and it excels at pointing out ways to reduce expenses while increasing happiness.

Another key benefit of this framework is that it is designed to keep you flexible and adaptable. Part of the process is to regularly revisit and revise your plan. If there is an unforeseen event, resilient investors find a way to learn from the experience and emerge smarter and stronger. Think of a redwood tree: after a fire, it grows even sturdier and releases its seeds into the rich soil left behind. But even if disaster never strikes, resilient investing is smart investing. Its forward-looking approach helps you identify and seize new opportunities that others may miss.

Finally and perhaps most importantly, as you move through this book and take steps to boost your personal resiliency, you will also be fostering resilience in our communities, our economy, and our environment. The beauty of this approach is that the strategies that best prepare you and your family for a range of future scenarios are inherently beneficial to the systems upon which civilization and all life depend. Resilient investors strive to stay abreast of the changing world and participate in constructive ways, wherever it goes: to be part of the breakthroughs to a sustainable future, to prosper in a world that is muddling through, and to have foundations for sustenance and happiness in place if things start to crumble around us. While this resilient adaptability is central to effective personal decision making, it also enhances our collective ability to successfully traverse these times.

What makes this so groundbreaking is that you—the investor—need not base your decisions on any moral or ethical injunction to do the right thing. In many ways what we are proposing here can be seen as nothing more than a rational attempt to be prepared for multiple possible futures. Of course, we take it as a given that nearly everyone desires what is best for the world; it’s this natural human tendency that in 1999 led us to call what we do “natural investing.”10 But we also know that many people make their investment choices, at least for financial assets, based strictly on their calculations of monetary risk and return. Resilient investing offers a big tent, one that welcomes anyone who wants to be proactive about their future.

For those who are motivated to intentionally weave personal values into their financial and life decisions, there are now many more ways than ever before to nudge the world forward: companies actively building an economy that thrives within the limits of our biosphere and the diversity of global cultures, community loan funds that foster opportunity and equality in societies worldwide, crowdfunding empowering innovation throughout the economy, and programs building local food systems and funding ecological regeneration. Your investment, banking, purchasing, and charitable choices can be part of any or all of this—and in so doing, you will be aligning your financial decisions with your desire to make the best of whatever is yet to come.

Meanwhile, the heart of the resilient investor’s portfolio may well be in nonfinancial investments. We can all benefit from putting energy into our own well-being and personal growth. Your relationships, in family and community, will forever be the fertile soil from which your life grows. And the time and energy you invest in the place where you live will foster the tangible assets of the home, community, and ecosystem that you will be living in and relying on in the years to come. As you expand your investment horizons to include more than what you do with your money, you will stay connected with the real wealth in your life. And that is always your best investment!

CHAPTER 1

Facing the Future

Why We Are Expanding Your View of Investing

WE HAVE LAID OUT A RADICAL NEW MAP OF THE INVESTING universe, and we are inviting you to navigate your own path across this vast terrain. But before we start exploring the nooks and crannies, let’s take a moment to ask the fundamental question: why invest?

Some would say this is obvious—we invest to build wealth. And what’s the point of building wealth? To be secure? To then build even more security and more wealth? Isn’t that what we all want? Well, no, at least not in the way it is usually presented. While we take it as a given that most people want to increase their financial assets (at least up to a point) and have some nice things, traditional measurements of personal wealth are inadequate, often ignoring that which gives us the most satisfaction. Economists measure our “standard of living,” but what we are really after is a higher “quality of life”—and while there is overlap, those two are not the same thing! The point of investing, we would suggest, is not just about having more but about being happy in a full, classical sense.

Let’s look back—back as far as 2,500 years—for help in answering these questions. Aristotle, writing in the Nicomachean Ethics, described the point of a well-lived life, the goal we should be aiming for, as “blessedness.” For Aristotle blessedness meant enjoying family and friends, with a deep feeling of well-being and contentment. In our day this ideal might suggest a mature experience of knowing one’s mission, succeeding at pursuing that mission, having a solid primary relationship and close friends and family, having sufficient financial resources to live well according to one’s own standards, making a contribution and leaving a legacy one can be proud of, and staying in right relationship to the natural world that sustains life. It is not about more—it is about better.

We do not think of investing as simply a professional, numbers-crunching discipline; for us it is something much more fundamental. We believe investing should support financial goals (buy a house, start a business) and it should support the bigger and deeper and more profound purpose of a life—Aristotle’s blessedness. Investing can help each of us live a better life, and it can help improve communities and build a better world for all.

To do this we must first break out of the confines that limit our ideas about wealth. Financial choices are just one part of a continual process of giving and receiving, balancing risk and reward, and exchanging time, energy, and money with those around you. So let’s make room for values and communities, for society and the earth. And let’s expand our vision to include the interior realms of emotional and spiritual well-being as well, which are enduring elements of healthy human development. By doing so we are bound to get results that are more relevant and more life-nourishing.

One World, Many Futures

Hopefully, you are feeling enticed to put some of your valuable time into this soaring vision of investing. Be aware, though: you’re going to need a pioneering spirit. In these volatile, uncertain times, the old road maps that guided twentieth-century investors are obsolete. The landscape has changed, and you’ll be traveling on new pathways that have yet to see much traffic. This can be disconcerting, as it lacks the appearance of stability—that Rock of Gibraltar that was once an icon of the financial industry but turned out to be a mirage.

The uncertainty that plagues today’s investors became clear to us over the past several years, as clients and friends shared their notion that the world has come unmoored and that business-as-usual is no longer a reliable anchor for making decisions about their investments—or their lives. While these wide-ranging conversations are often rich with insight and full of passion, our role as investment advisors asks us to act from an objective view of the world, free of personal and emotional bias. As you can imagine, this is no easy task!

The global economy has proven to be remarkably resilient, having adapted and grown in spite of (or because of) dramatic, world-shaking events. So it seems likely that our fundamental social and economic structures will remain intact, at least into the near future. Yet the potential for disruption—sudden or slowly mounting social, economic, and environmental upheavals—has increased to the point that it may make sense to hedge our bets on that front.

On the other hand, we see that rapid advances in technology, along with the interconnection of global civil society, contain a wealth of creative promise that we have just barely begun to glimpse. This could catapult us forward more rapidly, and in different directions, than we have imagined.

With this awareness comes the need to give due consideration to several plausible futures that are beginning to emerge, co-existing in ways that are already visible. We will flesh these out more in chapter 6, but, for now, here is a sketch of the future landscapes that are coming into view. It’s important to stress that we do not suggest that any one of these is likely to dominate our future or that they are equally likely—they are archetypal images that we’ll be using in a much more nuanced way.

  • Global scenario 1: breakdown, “the long emergency”

Social, economic, and/or environmental meltdown, leaving the global economy in tatters

  • Global scenario 2: muddle through down, “relentless struggle”

Rolling recessions amid a failure to address the systemic causes of social, economic, and environmental decline

  • Global scenario 3: muddle through up, “incremental progress”

Gradual improvement of key quality-of-life indicators within the status quo framework of political and economic systems

  • Global scenario 4: breakthrough, “rational emergence”

Exponential social innovation, new technologies, and the evolution of wisdom/consciousness to deploy them wisely

What do you think? Are there any that seem absolutely impossible to you? Can you imagine that aspects of any and all of these descriptions could come to fruition?

Most people have been making investment and life plans based on the assumption that we will continue living under some variation of a muddle-through scenario. Relatively few have seriously considered, let alone prepared for, scenarios that upend the status quo structures upon which these investments rely. Of those who have taken action, some have done so in a reactive way, rashly bailing out from the global economy in anticipation of some sort of apocalypse, or perhaps dreaming of a prophetic worldwide awakening.

But preparing for a range of possibilities can be done in a healthy and balanced way. As a resilient investor, you’ll want to at least consider them all and will likely take some steps that will help you adapt to any scenario you see as possible, even the ones that you consider unlikely. This will help you face the future with fresh eyes and provides a framework that lets you move forward with confidence.

Time for More Baskets!

Diversification is, at its root, a response to the ancient admonition you might have learned from Grandma: don’t put all of your eggs in one basket. If that basket drops, they could all break, ruining your and Grandma’s breakfast! This proverb can be traced back to the seventeenth century and was popularized by Cervantes in Don Quixote.1 (Later, Mark Twain, ever the contrarian, proposed the exact opposite: “Put all your eggs in the one basket and—watch that basket!2)

The wisdom of Cervantes goes nearly unquestioned today. Virtually every reputable financial firm teaches people about diversification, extolling the importance of spreading out risk. But—and this is an important but—we contend that however well intentioned, Wall Street’s version suffers from two major omissions: first, Wall Streeters focus solely on one’s financial instruments; second, they cannot model the possibilities of breakdown/breakthrough, so they presume that we will muddle through for the foreseeable future.

These blind spots have led investors to focus nearly all of their attention on investments made within a single zone on the RIM (zone 8: financial assets/global economy). A good financial advisor will ensure that you are diversified within that basket3 and might even offer advice on real estate (zone 4: tangible assets/close to home), but this is far different from being offered enough baskets to fill the RIM. A more accurate metaphor is a bunch of small dividers (subcategories of types of stocks and bonds) placed within the basket that contains Wall Street’s financial instruments.

So instead of following Grandma’s wise advice, people are unwittingly using Mark Twain’s approach, one that was meant to be a parody! We are putting everything into one large basket, hoping and praying that we don’t trip and that nothing bad happens to the global economy, either of which could send our eggs tumbling. This may sound humorous, but it leaves people far more vulnerable than they have been led to believe.

Resilient investing takes the virtue of well-considered asset allocation and applies it to a wider set of holdings. Obviously, there is so much that will not fit in Twain’s single container, including all of your personal assets and most of your tangible ones—the very investments that will serve to buoy you through the ups and downs of your financial holdings. We are making the case for creating a truly balanced portfolio that includes much more than you will ever find on a brokerage statement.

And what happens if the future is not simply an extrapolation of muddling through? Wall Street’s methods have worked well during many market cycles, but they offer scant protection from systemic risk—the risk of collapse of the overall market, not just a particular company or industry. In financial-speak, another word for systemic risk is undiversifiable risk,4 which essentially says that there is nothing in the global economy basket that will keep you afloat when the ship goes down.

The recent financial crisis provided a glimpse of what this could look like. Real estate values collapsed, uprooting homeowners who had been lulled into a fantasy world where prices only go up. Bond prices gyrated, as the risk of default by corporations and municipalities rose, causing great distress among older investors who thought they were invested conservatively. Even gold, regarded as a safe haven by many, sank 25 percent during the worst of the 2008 crisis.5 Investors had no place to hide except under the mattress.

Nobody knows when the next shock will hit the financial system, but if there was one lesson to learn, it was that investors need to update their risk management toolbox. We are not willing to accept that there is no way to address systemic risks, and neither should you. A resilient investing plan will enrich your life in today’s world while hedging against—or, if you choose, preparing for—the possibility that our fundamental social, economic, and environmental reality could shift in profound ways. Of course, while resilient investing may reduce exposure to systemic risk, we also must remain diligent and conscious of managing (and balancing) the range of specific risks inherent in our actions across the RIM; this is addressed in brief in Resource 2: The Investor’s Eye (at the back of the book) and in more detail on ResilientInvestor.com.

Our nine different baskets offer a much wider array of places to entrust your investments. Remember that baskets are one of humanity’s oldest inventions—practical, sturdy, beautiful, even (dare we say) resilient containers—and have been put to myriad uses through the ages. As you make your way through the next three chapters, you are bound to realize that you have already been putting some eggs into many of these resilient investing baskets but lacked a framework for seeing how they fit into your overall picture. The RIM helps us be mindful about all of our investments—including those made with our time and attention.

Diversification may not be an elegant term, but it comes from diversify, which means to expand and broaden our horizons. Now it’s time to do exactly that, as we escape from the box that limits most investors to mainstream financial offerings. Let’s unfold the Resilient Investing Map and set off on our journey of discovery!

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Endorsements

“Brings to investment what the periodic table brought to chemistry—clarity, order, and understanding. Thousands of books have been written about how to live well, shop smart, or save wisely, but this is the first to show, step by step, how to optimize for all three and how to harmonize our choices with our dreams.
Michael H. Shuman, author of Local Dollars, Local Sense

“To survive and thrive in an uncertain future means being resilient—in every sense of the word. That’s easy to say, hard to do. The Resilient Investor [shows] not just what resiliency means to a financial investor but also how it relates to the investments we make every day in our families, our communities, and ourselves.”
Joel Makower, Executive Editor, GreenBiz.com, and author of Strategies for the Green Economy

“I celebrate this book, which lays out a new map showing how each of us can create an ecosystem of investments that helps us thrive no matter what the future brings.”
Vicki Robin, author of Blessing the Hands That Feed Us and coauthor of Your Money or Your Life

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